Poor Vegetable Crop Dents Demand for Tin Cans

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U.S. steelmakers, already stung from tariff-related business moves that have backfired, are facing an unexpected new woe: a bad vegetable harvest.

United States Steel Corp. and ArcelorMittal SA ramped up production and improved the quality of the tin-coated steel sheet they make for food cans, expecting domestic demand to increase after foreign metal became more expensive following the 25% duty the U.S. applied to those imports. But imports of steel for cans have hardly dropped since the tariff was implemented in March 2018.

Now, falling demand for steel cans is a fresh ding to producers. The wettest 12 months on record have wreaked havoc across the Farm Belt and hurt this year's crop of peas, beans and other vegetables packed in steel cans. Halfway through the packing season, canned vegetable volumes are running 10% below last year's level. At that pace, about one billion fewer cans will be needed this year, leaving can makers with an excess of steel sheet.

"There is an inventory glut building," said James Peterson, chief executive of Ball Metalpack in Colorado, a subsidiary of aluminum-can giant Ball Corp. that accounts for nearly one-fifth of the steel-can market.

As a result, U.S. steel mills are dialing back production of steel for cans, undermining recent investments to improve the quality of that product. Cutting production is also a setback for their efforts to take market share from foreign producers. Last year, nearly half of the domestic demand for 1.7 million tons of tin-coated steel sheet, known in the industry as tinplate, came from foreign producers, up from about one-third in 2013.

U.S. Steel plans to idle a tinplate mill in East Chicago, Ind., by the middle of November, furloughing about 150 workers and reassigning about 150 more. ArcelorMittal said it would lay off 100 workers at its Weirton, W.Va., mill. U.S. Steel and ArcelorMittal are the only domestic steel producers of tinplate for cans.

Demand for tinplate rose 1.6% during the first half of the year from the same period last year. Imports rose 2.5% as can makers stepped up purchases in anticipation of a bigger vegetable harvest. But production of cans for vegetables dropped 2.8% in that same period, said the Can Manufacturers Institute in Washington, D.C.

Food companies stock enough canned vegetables to keep their products on store shelves despite this year's weak harvest, Mr. Peterson said. There will likely be fewer promotions though in the coming months if supplies are tight. Can manufacturers will be hurt by the lost revenue while they are also paying more for both domestic can sheet and imports.

After the Trump administration last year implemented the 25% tariff on foreign metal, domestic producers of steel for cans raised their prices to match what imports would cost including the tariff fee. U.S. Steel and ArcelorMittal used the proceeds to upgrade production lines, hoping to win back customers that were buying more imports. U.S. Steel has committed about $150 million to its tin equipment; ArcelorMittal is spending about $20 million.

Those investments are being undermined by the Trump administration's May exemption for Canada and Mexico from the 25% tariff. Duty-free tinplate from Canada now accounts for almost one-third of imports of that product into the U.S. That is likely to pressure domestic companies to offer lower prices to can makers in supply contract negotiations this fall, said market forecaster Harbor Intelligence LLC.

Can manufacturers say that while the quality and reliability from domestic mills have improved, they will continue to buy tinplate for their cans from abroad as well to guarantee enough supply.

"The domestic mills' price would need to be below the tariff prices to earn their way back," said Rick Huether, chief executive of Independent Can Co. in Maryland.